Domestic OTAs have massive lead over their counterparts from abroad in hotel business, be in terms of geographical coverage, number of properties, and volume of business;Â How are foreign OTAs going about boosting their local properties portfolio via direct contracting in China?Â
This is one area where the likes of Booking.com and Expedia seem to be taking measured steps.
As we highlighted in one of our recent reports, foreign OTAs canâ€™t be over-ambitious. Simply because the way domestic OTAs have gone about product sourcing/ contracting, in terms of scaling up and even â€śannoyingâ€ť hotels over the last couple of years with what they themselves now are calling â€śunsustainableâ€ť tactics, the foreign intermediaries are better off at avoiding joining such cut-throat war for growth.
And ever since Qunar moved into the arena of hotel direct business, in addition to its meta-search model, it exerted pressure on other players, including Ctrip and eLong, to match the aggressive foray. In fact, the industry also witnessed the exit of Expedia Inc. from eLong last year.
If we look at what the hotel coverage of domestic OTAs looks like, the number of hotels directly signed on to Qunarâ€™s hotel network reached 323,000 by the end of Q3. Ctripâ€™s domestic hotel coverage reached 350,000 hotels at the end of July-September quarter, growing twice over when compared with Q3 of 2014.
The volume of bookings that Ctrip, Qunar etc. intend to contribute needs to be noticed, too.
As per information available with ChinaTravelNews.com, Qunarâ€™s average direct volume was around 50 room nights per hotel for Q2 last year, rising from 29 room nights per hotel in Q1. And the goal is to deliver on average over 200 room nights to a hotel in a single quarter, akin to volume contribution that an established OTA would manage in a mature market.
Where do foreign OTAs stand in China?
The number of Chinese properties featuring on foreign OTAs is much lower. For instance, Booking.com started last year with 8,000 properties, and grew it to 25,000 properties at the end of September last year.
â€śForeign OTAs build their inventory directly with local hotels, they do not strengthen via Ctrip and eLong,â€ť shared a source. Referring to a key city like Beijing, the source added, â€śCtrip has 10076 hotels for Beijing (Feb 2 - Feb 3, 2016), whereas Booking.com features 1377 hotels for the same city, for one night. So booking.com is mainly using its own inventory.â€ť
For its part, priceline did share in its Q3 earnings call that the booking.com team has â€ślargely self-builtâ€ť its domestic inventory. Also, going by the number of strategic alliances and ties that have been worked out, collaboration between OTAs in China and ones from outside isnâ€™t being ruled out in the future, too.
The Priceline group, for instance, referring to the progress made last year, has already indicated that its number of properties expected â€śto grow rapidly over time in part with Ctripâ€™s assistanceâ€ť.
The market is fragmented (properties with a star-rating are only 25000-30000), plus its huge and heterogeneous. A non-Chinese OTA needs to answer several questions - Who should form the target audience? What sort of hotels and properties needs to be added? Whether to go for tier-II, tier III or tier IV â€" how to respond to the equation of online penetration and desire to transact online?
Should foreign OTAs look beyond the primary market, which is witnessing a steady flow of digital transactions - say the place where the likes of Ctrip.com already thrive?
It is quite challenging for foreign OTAs to garner the attention of users from tier-II and tier-III cities and these users are the key drivers of the growth, moving from offline to online. Also, the efficiency of hotel contracting team needs to be assessed, and whether the arrangement is proficient enough to target opportunities beyond the tier-I cities. â€śIn the local market, Ctrip, elong, Qunar etc. have dominated nearly all segments except budget hotels chains and local small independent hotels where Meituan has a stronger market share and bargaining power,â€ť added the source.
It would be interesting to assess how foreign OTAs differentiate their local offerings, even as they can capitalise on various platforms available to sell their inventory for outbound market. Anyone can sell the way Chinaâ€™s intermediaries are shaped up their selling platforms.
But to sell on their own platforms, foreign OTAs need to optimize marketing mix and streamline the booking process â€" say using Alipay for payments or counting on a platform like WeChat to be an integral part of the way Chinese go about travel shopping.
Global brands might be sharp in predicting the behavior or even matching profile of a individual with the product that is likely to be bought, but is the traffic strong enough to justify the conversion rate on the web or mobile app in this market? This, as usual seen over the years, remains a critical part of the overall local strategy, along with product development.
Other than targeting domestic travellers for Chinese hotels, there are other possibilities, too. And one needs to be spot on as far as contracting is concerned.
â€śNot all hotels in China have a licence to receive international guest. We focus on those hotels that can receive international guests,â€ť a senior executive from a foreign OTA told us.
What should local hotels look out for when they are trying to tie-up with an OTA? For instance, when Ctrip already serves the domestic market, and offers access to international travellers what would entice a domestic hotel in China to tie-up with Expedia or Booking.com?
The decision here is justified by knowing who your (target) customer is - in this instance, a specific international feeder market â€" and truly understanding their behavior when planning and staying in China. Global brands such as the Priceline Group and Expedia Inc. already command high demand from international, corporate transient travelers - an important inbound segment for China.
But are hotels equipped or ready to work with foreign OTAs?
Prateek Dubey, senior project manager, Beijing Shiji Information Technology, says independent properties work with a limited knowledge on distribution with a focus on revenue maximization by offline means, such as allotment-based contracts with wholesalers, OTAs and offline travel agencies. â€śWe should help them by organising workshops on distribution awareness and scope,â€ť he says. â€śTraditional hoteliers donâ€™t exist in real world now as smart distribution technologies have come to par with advanced algorithms and expected results. Smart distribution involves real-time transfer of data across distribution channels and seamless connectivity.â€ť
Dubey further adds, â€śOTAs (domestic ones) or the big boys here rule it all. Their distribution contracts with hotels are more for them and less for hotels at times!â€ť explained Dubey. â€śThey feature or support less in terms of what the hotels expect in terms of global distribution technologies so at times hotels are forced to drive customized changes for them using switch or channel manager connects. Contracts are defined from global or domestic perspective and serve limited guarantee types.â€ť
Also, a source mentioned that the independent hotels do not actively use connectivity engines such as channel managers so this means the management of inventory and rates are not as robust and flexible. â€śThus, the attractiveness of distributing on many OTA platforms is not compelling for these hotels. It also means the desire to work on multiple platforms is low and they will likely stick to a few (such as Ctrip) which they are already managing.â€ť
And competition is increasing, too. As Dubey mentioned, â€śWe are now looking at some new OTA players being funded by e-commerce giants. These lack the expertise and technology to run the business, however, they are being supported by experienced tech partners. On the commercial side they have some highly experienced people who understand the market have the acumen to crack some good contracts with most chains in China and the APAC region.â€ť
Foreign OTAs have now branch offices in all major cities of China with experienced people for domestic contracting. As per the feedback from the marketplace, foreign OTAs picked performing people from local OTAs - CITS, Qunar, elong, Ctrip, Tuniu, Lvmama and international hotel groups operating here to create a commercial base.
Some have net rates, while others have commissionable rates, depends on how well the negotiations take place. Local OTAs have a better relationship and market expertise, and a huge customer base that helps them crack better deals, whereas foreign OTAs are limited in terms of such expertise, and will evolve gradually.Â